Force Majeure or Frustration - Check Your Leases - Maybe Unenforceable

Discussion in 'Commercial Property' started by RPI, 22nd Mar, 2020.

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  1. RPI

    RPI Property Lawyer, Town Planner Business Member

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    A Force Majeure is a doctrine of common law that prevents a party from being forced to perform its obligations under a contract. Covid-19 of it's own may not be that (given our current infection numbers are low), although many contracts and leases have a Pandemic clause also, but the government's reaction and instructions to stay home, socially isolate etc means that it's extremely likely this would be sufficient to be a Force Majeure.

    Further, the Doctrine of Frustration would be applicable in this case even if your lease/contract didn't have a Force Majeure.

    Landlords are likely to be unable to enforce obligations, that means bonds to be returned in the event that Force Majeure notice or Doctrine of Frustration notices are given.
     
  2. FXD

    FXD Well-Known Member

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    Are landlords eligible for commercial loan repayment holidays/relief in this context?

    Anyone have rents default insurance taken out and have clarified with underwriter about the claim
    eligibility if tenants really close down shop and go out of biz during pandemic?

    If Force Majeure can override tenant obligation, it may equally render failure to serve out lease
    term & paying rents as not a breach of lease agreement. If so, are rent default insurance basically
    becoming worthless?
     
  3. thatbum

    thatbum Well-Known Member

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    You reckon its sufficient for frustration? I'm not as well versed in the commercial leasing space, but I would have thought its not as clear cut a cause of action compared to textbook frustration cases like where the premises are destroyed.

    I would have thought there's some scope for a lessor to push back on a tenant claiming frustration.
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    Generally, I would say that there are no provisions in the lease which would provide rent & outgoings abatement to the tenant except in the case of damage to the premises.
    upload_2020-3-24_16-10-54.png

    I do note that one of the leases which I frequently use puts the obligations of compliance squarely on the tenant even when under a notice or order given by a competent authority (is the gummint/the Public Health Officer/Health Minister considered a competent authority)?


    upload_2020-3-24_16-3-32.png
     

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  5. danvestor

    danvestor Well-Known Member

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    Thoughts?

    Bold highlighting is mine.

    Also, No definition of "Obstruction" in the lease.

    10.1

    Abatement of Rent on Damage to Premises

    If, at any time during the Lease: (a) some natural disaster or other serious event occurs which is beyond the reasonable

    control of the Lessee; (b) as a result, the Premises are destroyed or damaged, wholly or in part or the usual


    access to them is obstructed wholly or in part; and as a result of the destruction or damage or obstruction of access, the Lessee is not

    able to conduct its business on the Premises in a reasonable manner; the Lessee's obligations to pay rent and outgoings will abate to the extent proportional to the effect on the Lessee's business until the Premises and/or access to the Premises are reconstructed or restored to a condition in which the Lessee's is able to conduct its business on the Premises in a reasonable manner.
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    Although CV may be a "serious event", it may not be considered as damage to the premises and it is the extent of damage causing the obstruction of access, not the event itself or the consequences arising.
     
    Terry_w likes this.